BBOXX and Oikocredit bring securitization to off-grid African solar

Dutch investment firm Oikocredit International teams with London solar innovator BBOXX to turn the growing off-grid solar sector in Africa into an asset class; aim is to raise $2 billion in next five years.

The contracts of BBOXX customers in Africa tied to installment payments are bundled together for investment by Oikocredit, which helps to mitigate risk for all involved.

GIZ

Innovation in funding Africa’s solar evolution has always likely been the key to unlocking the continent’s vast PV potential, and a new investment model that seeks to bring securitization to the off-grid sector promises further progress in that direction.

Oikocredit International, an investment firm headquartered in Amersfoort, Netherlands, is working with London-based solar model innovator BBOXX Ltd to attempt to replicate the U.S. model of securitizing residential solar installations across Africa’s off-grid solar market.

Backed by New York merchant bank Persistent Energy Capital LLC, the program aims to raise up to $2 billion over the next five years to turn solar in Africa into an asset class, and creating contracts for thousands of solar rooftop arrays to sell as bonds to investors.

The three companies have begun their project in Kenya and Rwanda, and have revealed plans to expand into Nigeria and even beyond the African continent to Pakistan. An inaugural issue of bonds in rural Kenya has raised $500,000. This bundle of 2,500 active solar contracts has an average maturity rate of 2.5 years and an interest rate of 21%, Oikocredit said.

Shaping African solarDemand for off-grid solar is growing throughout the continent, and Oikocredit is confident that such innovative business models can loosen the purse strings and kickstart the sector while minimizing investment risk for interested parties.

"We are proud to be part of this innovative way of financing where we lend money on the basis of future receivable from solar home system contracts," said Oikocredit renewable energy manager David ten Kroode. "By demonstrating how this can work, we are paving the way for other lenders to scale up the much-needed investment in this early-stage growth sector."

The BBOXX DEARs bundle the contracts of its customers that have bought a BBOXX solar system via the installment payment option. The package then issues notes and sells them to Oikocredit, and the value of these notes is based on future receivables on the customers’ contracts.

According to a recent interview by BBOXX CEO Mansoor Hamayun, this financial model is the only one that can scale to billions in Africa. "The fact that we can securitize the credit risk of the unbanked and, very soon, get rated, has us very excited," he told the Huffington Post. "We now have a methodology to bring solar electricity to off-grid customers at a larger scale."

The potential for growth in the African continent is vast. The International Energy Agency (IEA) estimates that more than 1.2 billion people worldwide live without access to grid-connected energy, most of whom live in rural areas of Africa and Asia. Off-grid solar is widely viewed as the most effective and affordable leapfrog development model, but financing such expansion has often proven tricky.

By drawing inspiration from the U.S. solar bond market – which has already attracted more than $60 million in investment – Oikocredit and BBOXX are confident that they can transform Africa’s off-grid sector. The next bond issue is due on March 1, and will be valued at $1.5 million. The target for 2016 is to raise $16 million via bond issuance every 90 days.